In 2015, Sun International tried to buy rival casino group Peermont for R9.4bn, but the competition authorities wanted it to dispose of either its Pretoria-based Time Square casino or Peermont’s Emperors Palace to get the deal over the line. The deal was shelved.
Now Sun International is again trying to buy Peermont, for R7.3bn, subject to the approval of the Gauteng Gambling Board and competition authorities. Sun International owns various hotels and casinos, including Sun City, Wild Coast Sun, The Table Bay hotel, GrandWest and the Maslow in Sandton.
Business Day spoke to Sun International CEO Anthony Leeming about the proposed deal.
Do you think the competition authorities will give the deal the green light?
Casinos don’t really compete that much. We did quite a lot of work investigating the competition aspects of [the deal]. We do believe the competition authorities should approve it because there’s not too much competition among casinos. There is a bit [of competition] in Gauteng.
Should the competition authorities insist on a disposal, we would consider that. But obviously not like last time. We don’t want to dispose of Emperors Palace or Time Square.
What would you dispose of if required?
[We would consider disposing of] Carnival City. It competes more with Emperors Palace than Time Square does.
What is Sun International’s casino market share in Gauteng?
Our market share in Gauteng is 28% and Peermont has 20%.
So together you would own half the Gauteng casino market?
The other half is owned by Tsogo Sun.
The other casinos outside of Emperors Palace in the Peermont group are fairly small. Is it worth paying so much for the smaller properties?
Well, it was a package deal so we couldn’t just take Emperors and nothing else. We had to do the whole deal.
Down the line we will look at what to do with the smaller assets. There are no immediate plans to dispose of anything. I must emphasise that. We have to wait and see what the [competition authorities] say.
So essentially you are buying Emperors Palace?
Emperors is the prime asset that we are after.
Emperors Palace is situated at OR Tambo airport. Do you have a lot of people flying in from China as they can’t gamble legally in their own country?
Its [customer base] is largely local players. Emperors does get some African business, but it’s not the bulk of the business. Like all casinos, there are some Chinese guests.
Apparently Emperors is more profitable than Tsogo Sun’s Montecasino property?
Monte is not a small casino. It does very well. Emperors is a bit more profitable. But both are very good assets and very good properties.
There was some speculation that you were looking to buy a sports or online betting business after a cautionary on the deal was issued. Aren’t casinos ex-growth?
We are buying Peermont for what we believe is a very good value. Yes, casinos are not growing that strongly. But what we have seen in our portfolio is that the larger casinos are contributing [the most] to the group. They’re more resilient and they have great margins and better cash flow. After capital expenditure, the returns are phenomenal.
It’s a very good opportunity for us to increase our gaming, scale up and also get access to their [Peermont’s] customer base for our online business.
How will this deal help your online business, SunBet, which offers online gaming, sports betting and live dealer games?
Ideally, we can advertise SunBet to Peermont’s customer database and help increase our revenue. The Sun International benefits are quite [attractive] to their customer base.
Your debt will increase from R5.9m at the end of June to about R13.2bn. Is the debt-based deal worth the cost?
We will probably reach a multiple of 2.6x debt to ebitda [earnings before interest, tax depreciation and amortisation] on the acquisition, which we don’t think is too onerous. We still believe we will pay dividends. So we don’t see the debt as too bad. And then we will gear down to our long-term target of 2x [debt to ebidta] within two to three years.
The cash generation of their business and our business proves that we can buy this, reduce our debt very quickly and get back to the position we were are in currently.
This interview has been edited for clarity and brevity.
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